»03/19/2008ASIAEconomic crisis renews prospects for world currencyby Maurizio d’OrlandoAs the number of prophets of doom multiplies, the demand-side structural imbalance of the world economye, now under scrutiny in many economic studies, lies in the artificial compression of Chinese domestic consumption.

Milan (AsiaNews) – After Greenspan rang the alarm bell last December, most economic commentators, pillars of “reliable” information, have become increasingly pessimistic. Until then those who had warned that the world economy faced systemic risks had been relegated to the margins of public discourse and branded as wild doomsday prophets.

Recently though the news about a pending doom have come in short succession. Not only is there a mortgage crisis, monoline insurers in tilt, huge losses by banks, big and small, in the United States, Europe and Asia, paralysis of interbank movements, but almost on an hourly basis, economic news agencies are reporting the bond crisis affecting US local administrations, some of which might already be insolvent, and rising unemployment, etc.

The Carlyle Capital Corporation for example, a private equity investment firm and affiliate of the Carlyle Group, a private equity fund (with assets in defence and advanced technologies traditionally linked to the Bush clan) defaulted on about US$ 16 billion of debt just a week ago, which now seems such a long time ago. This is (actually, was) startling news because it means that, for the market, bonds issued by government agencies are worth little or nothing.

The firm bought about US$ 22 billion of AAA-rated mortgage debt issued by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) offering a hair cut of 30 per cent (i.e. a percentage subtracted from the par value of the assets used as collateral).

On Monday came the news that Bear Stearns, the fifth largest US investment bank, was saved in an operation that confirmed its failure. Even the historic Lehman Brothers seems threatened.

AsiaNews is neither a stock exchange newsletter, nor a business news agency, but a few observations are called for.

First, economic and politics seem to be converging. The crisis in the US financial markets is occurring at a time when the United States removed China from its list of countries that do not respect human rights and reacted with mild criticism to Chinese repression in Tibet, a time when it is facing military difficulties in Afghanistan and Iraq. The US dollar, which since the Bretton Woods Agreements of 1944 had been the reserve currency in lieu of gold for NATO countries and (since the collapse of the USSR) of the world, is losing its value, underming the world’s fragile political balance.

The euro, the European Union’s currency, cannot however fill the gap. For now at least, it cannot fully replace the greenback in day-to-day internationalexchanges and commodities pricing. Understanding why this is so would a much greater analysis than can be done here. Suffice it to say is that the Kosovo crisis, an open wound on Europe’s body politic, is the visible political and diplomatic counterpoint to the euro’s inadequacy as the dollar’s substitute.

The second point that must be made is about the press and more broadly the media. After praising globalisation and patting the back of powerful financial markets mainstream media is changing its tune under the crushing sounds of major banks going under and heeding Greenspan’s alarm. Could it not see that a tsunami of worthless securities was on the verge of sweeping everything on its path?

A third observation is about the theologians of the economy, namely the economists. Only now are these pundits discovering that the model of development in the hitherto much-hailed globalisation is proving unsustainable. Truly, they are finding out that such a model contains a built-in structural flaw in the relationship between worldwide aggregate demand and offer, a flaw that is inherent in the economic and financial characteristics of the countries in the Far East which are mirror image of the big Western economies. They are truly realising that the imbalance was made possible by insolvent financial institutions as much in China and the whole of Asia as by those in older industrial economies.

In order to support ruling political institutions, Asia’s credit system must cover huge holes created by domestic credit regimes ruled not by merit but by forms of economic dirigisme that are only superficially different only (the modus operandi of Japanese elites are different from those of China).

The dirigiste model of development generally adopted in the Far East relies on the driving force of exports as the engine of economic growth. It is a scheme rooted in theoretical bases and economic notions found in the distant nationalist philosophy of Johann Fichte for whom the economy must ultimately be subordinated to political goals (a nation’s greatness in every domain), which in his case was German unification in the 19th century.

This was the model first adopted by Japan at the time of the Meiji Era that lasted well into the 1970s and 1980s, by South Korea and the “Asian Tigers” till 1998, and by China till now.

According to some prominent scholars, this model was combined with a later version of 17th century mercantilism, once typical of North-Western Europe, which as based on the notion that the wealth of nations did not rest on the welfare of the population and on productive structures capable of achieving such welfare but on the amount of bullion accumulated through exports.

With due consideration for the times, these are the economic foundations that have ruled China’s recent development. With a fixed but totally unrealistic exchange rate (a third of what can be inferred from its relation to the currency’s domestic purchasing power), Chinese authorities have tried to accumulate via surplus export a financial windfall expressed not in bullion (like in the 17th century) but in foreign exchange, especially in dollars and US public debt. This way, by excessively restricting domestic consumption, in particular in the rural population and migrant workers, i.e. the most marginalised social groups, China’s leadership can continue its dirigiste approach to power after the failure of the Communist economic model.

Despite the highly inefficient system of production, a distorted allocation of resources, an almost endemic insolvency of the banks, the deterioration of the environment and a growing social malaise, China’s Communist authorities, heirs to Confucian governance, have been achieved rapid industrialisation even if it was on the backs of the rest of the world as well as its own marginalised (and half-enslaved) domestic labour force of hundreds of millions of outcasts.

In many economic analyses that are now being hastily read, the structural imbalance in the world economy is seen to lie on the demand side, in the artificial squeeze on China’s domestic consumption.

On the supply side, the imbalance in China’s fast-paced industrialisation has meant instead an expanded production capacity with an unprecedented increase in fixed capital investments (machinery, plants, etc.), growing by 30 per cent a year. This production capacity, geared towards accumulating financial wealth, was structured around the needs of debtors who were insolvent in real terms but who held however vast amounts of the reserve currency, the US dollar, the main tool for international payments.

In the past four years AsiaNews has looked at the issue albeit with a different perspective and focus, expressing other concerns. The main difference lies in a different historical framework and analysis of responsibilities, imperceptibly and only apparently linked together by the legal system’s biases.

One consequence of today’s scholarly analyses is the fact that the international financial system lacks self-correcting mechanisms to alleviate observable imbalances without provoking large-scale shocks.

What is presented as a simple outcome should instead be argued and analysed in other ways. In reality more than an outcome it is an anticipation of what is expected to emerge from the ruins left by the looming catastrophe, namely the loss by the United States or any other country of their ultimate monetary sovereignty.

The solution to this would-be crisis, the panacea for the recurring financial bubbles, has been vetted for quite some time; it is a single world currency based on an old tool from the Bank for International Settlement, namely Special Drawing Rights.

A first outline is already in the making; discussions about the project are well underway, albeit in hushed and cryptic tones so as not to upset the sovereign people who are supposed to rule in democratic societies but like the toys, media circuses, boundless pleasure, licentiousness and voluptuousness which everyone can grasp.

Now however in the select chapels of working groups connected to the United Nations, the cathedrals of the “world order,” in the almost initiatory language of the most important currency priests, the bell has tolled marking the end of recess for the Federal Reserve. And it was Greenspan who pulled the bell; after all he allowed it to go on recess in the first place fully cognizant of the facts. Hence, don’t ask for whom the bell tolls, for it tolls for all of us.

CHINAWenzhou: 90-year-old bishop and 26 priests protest against cross demolitionsby Joseph YuanThis is not the first time that the old bishop and his priests speak out against the demolition campaign against crosses and churches, which has touched more than 400 buildings. During the protest, police tried to disperse the group, which sought to submit a petition. The faithful recite a Crown of the Divine Mercy is in support of the Chinese Church. In Lishui, churches are expected to be torn down by 31 August.

ISRAEL - IRANAfter nuclear deal, Israel ought to become Iran’s best ally by Uri AvneryThis is the thesis of Uri Avnery, leader of Gush Shalom, a major supporter of peace between Israelis and Palestinians. According to the great statesman and peace activist, Iran only wants to be a regional power in the Islamic world, able to trade with everyone, inspired by a sophisticated experience that goes back thousands of years. Iran, which faces backward-looking Gulf monarchies and emirates, could be a great ally against Daesh. Meanwhile in Israel Netanyahu, politicians and the media continue to blunder.